Dynamical Modeling of Climate-Related Financial Risk and the Interplay of Natural Disasters, Migration, and Loan Defaults
DOI:
https://doi.org/10.37134/jsml.vol14.2.7.2026Keywords:
Climate-related financial risks, Dynamic modeling , Natural disasters, Differential modelAbstract
The global financial system is at risk of experiencing systemic crises due to climate change and the combined impacts of higher natural disaster-related losses, migration pressures, and deterioration in loan default rates. A deterministic dynamical systems model is developed in this study to analyze the factors of climate change-related loss, people migration dynamics, credit default behavior, and financial sector strength. The model, based on a set of nonlinear ordinary differential equations aligned with the principles of economic and ecological dynamics, made it possible to see how the financial system might be influenced by environmental interventions in the long run. The qualitative study confirmed that the model possesses certain very critical qualities, such as positivity, boundedness, and local stability of equilibria. Consequently, a semi-analytical decomposition solution for the same was obtained using the Adomian Decomposition Method. Numerical simulations are presented as a means to demonstrate how the system dynamics respond to variations in the critical parameters and are also employed in situations that are significant for policymaking. The results show the nonlinearity and interconnectedness of climate-induced financial risk, thereby indicating the necessity for maintaining financial flexibility through adaptive policy frameworks that cater to the changing climate conditions.
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